Dogpile

<<The longest time frame for futures trading is the expiry of the contract which is only 3 months from start to finish. Anything more than that and ETFs are your thing.>> I don't see much advantage to ETF's unless you truly are a long-term holder. Futures have a tax advantage over ETF's. 60/40 cap gains treatment on futures vs full tax rate if hold ETF less than 12 months. also, you do have the option of easily trading futures in the overnight session -- for better or worse. true though, you do have to deal with the rollover with futures.

just thought I would add my current thinking: I do like going in on 2 trades rather than 1 --- scaling in... I always use 'buy-market'/'sell-market' on stops for ENTRY (sends a market order if it trades at my 'trigger price').... so this makes this clean when your order is sent during a buy or sell program that is executing. 'joining in' on this with a stop-market is a beautiful thing..... I am generally playing for a profit goal of just a few points... so for example, say I have staggered 2 different 'short-market' orders on NQ at 1960.00 and 1959.00... say they are each for 5 contracts each... now the market fills the first one at 1960.00 -- I instantly put a 'buy to cover' limit order for 5 contracts at 1957.50. why? because it will fill my other order at 1959.00 and give me 'exposure' of 10 contracts at that point. I will be averaged in at 59.50 and general scalping target is 3 points (1956.50)... so my real risk is that the market fills all my orders and instantly reverses between 57.50 and 59.00... if my first order is a bad trade, I am somewhat unlikely to fill on the 2nd part of the order without also filling the buytocover limit order given the small distance from the 2nd entry to the first exit point. if my order is a good trade, I will fill on both and might make my first profit within a minute or two of the second entry... this fill reduces risk exponentially. many times, I will take my second position and manage the exit on a discretionary basis. I might watch the first push and move down my stop to the top of the 3-minute bar that the entry triggered. good trades tend to work right away while bad trades tend to reverse right away --- so I have found this to be effective. your worst analysis of the market will tend to fill only on the first order. one other scaling in method is simply using signals that are similar but on different contracts (ie YM)-- and use a similar style to exit... get out of the first entry relatively quickly after the second entry 'triggers'... futures have so much leverage that it is important to control your risk tightly... I find that having multiple orders out (say 4 orders across 2 different contracts) is a really nice way to control risk when you begin trading bigger size and the dollar values get big... you only need a couple of points a day with size to make a living...

waveslide, we should chat a bit more --- I really like this method and sounds like you may have been down the same road as me before you arrived at this... <<I have an entry method that statistically and logically works. I use discretion, looking at various things to bias myself direction-wise, then use a non-quantitative method of exit that is dictated by the market's reaction to my entry.>> I would love it if you had time to discuss an example of a trade you did with a few points about what made your 'bias' -- the real important part... but also, what your entry method was... I don't mind chatting about this publicly ( in this forum) if you don't... its really not like some giant institution can possibly emulate our strategies...

<<So long as you tighten up your stops for the losers, but that will distort your results from the original system. When these failed reversals start kicking in more often, the small winners may not cover the larger losses.>> the only 'system' is on the lower timeframe. my stop is based on the lower timeframe -- there are no larger losses possible because the initial stop is not discretionary -- its based on the optimization I have already performed. now if it moves my direction, I will always take 1/3 to 1/2 the position off at least. the other piece will be a discretionary exit but never a stop further away than the original stop -- and usually I tighten the stop to small risk or breakeven depending on the initial push after entry.

<<I still dont understand what criteria are you using to determine an A>> I am not trying to determine A... I am just trying to determine the end of C... it becomes tradeable if I see ABC and have reason to believe that the C wave will end (ie, pivot resistance). mine is not related to yours really -- I wouldn't have posted anything here except to point out that ABC is a common, completed pattern. your set-up is well-expained. you are playing the momentum continuation, much like a bull flag type of set-up. tell me this about the pattern you are talking about and forget mine... what 'defines' the end of 'B' in your mind? I mean, if you were to mechanically program it, you could easily set up the A leg --- say it moves 3 average true ranges outside the top of the keltner channel to qualify as 'momentum-A', then it needs to retrace a bit for the B leg... so what rule could you have to define the end of the B leg and the start of the C leg? do you just do this visually with a candle-reversal? you can definitely program that if so... I am not saying you have to program it for it to be valid... I am just curious for the general criteria on what defines the end of 'B' and the start of 'C' and its most easily understood if you talk about it as if talking about a mechanical program -- even if its not executed that way -- which of course it often isn't...

Another ABC pattern... this was another ABC pattern.... note that you don't know how far the B to C leg of ABC will go up.... you have to remain open to the possibility that it COULD rocket higher... you can't just short every ABC... in this case though, look how the ABC up found resistance at the 15-min 20ema amid a very bearish day... when it starts down off this, I think its worth a shot. Not at full size but ABC up is just a great pattern if you think you have a good reason that trade location is also good. Not a pristine set-up but worth reviewing I think: http://bp1.blogger.com/_5h-SWVGx6Ms/Rn1CdPVSL6I/AAAAAAAAAUE/hZmQS-gEh78/s1600-h/NQ+June+22+2007.bmp

ok, let's looks at another ABC. I think this demonstrates why market profile 'value' concept is so useful as a filter for trading. on Friday, look how this is a tough set-up. It looks like a nice corrective ABC down off Thursdays late afternoon 'lower high'. Moreover, this ABC down formed a swing low during the standard shakeout/reversal time of 10-11am. The problem with the set-up is that the first move of the day was not 'away' from previous day value. Instead, there is a pretty big gap down 'towards' value and then it trades further down to 54.50 area, which was the P O C (point of control) for Thursday. I decided to take the trade for a long but I used smaller size because of marginal 'trade location'. It wasn't trading much ABOVE previous day P O C, so location wasn't horrible --- but it wasn't trading 'away' from previous day P O C so trade location was marginal at best. It started my way but didn't go far enough to fill me for a profit and so I insted stopped out for a small loss. In retrospect, I made a mistake -- I think I got carried away because the 10-11am reversal had worked basically every day this week. (of course, had this trade worked for a few points and filled my limit order to sell, I would be patting myself on the back for putting something on when I saw a good pattern -- despite marginal location). (Monday thru Thursday all showed nice tradeable swings off of a 10-11am swing low). So it goes with trading... use smaller size when its not a realllly choice set-up. btw, note that the upswing petered out at the previous days 'last hour low' -- just an interesting sidenote to the structure of the day.... http://bp2.blogger.com/_5h-SWVGx6Ms/Rn0-3fVSL5I/AAAAAAAAAT8/qnPB4kgyYGQ/s1600-h/NQ+June+22+2007.bmp

Nice thread Walter.. here is a different perspective on ABC patterns. ABC is generally considered a corrective pattern. But on lower timeframes, a corrective pattern on a higher timeframe might be a good momentum pattern on a lower timeframe. Look at this chart of the S&P midcap futures with a focus on Thursday (6/21 -- note the times below chart are California time). Note that there is a larger scale ABC up which is corrective relative to the previous day 'trending profile' to the downside. Within that ABC up was actually a little ABC down during the larger B wave down. http://bp1.blogger.com/_5h-SWVGx6Ms/Rn0rRPVSL4I/AAAAAAAAAT0/167MgeH_ZEA/s1600-h/Midcap+Futures+June+21+2007.bmp

YM is a well-structured contract -- the issue is sometimes the range seems to just die for a while.... lately though, YM has opened up nicely. I can understand why YM is popular. personally, I don't understand why NQ isn't more popular relative to ER2. as stated above, ER2 can be extremely noisy around swing highs and lows. I find ER2 to be pretty frustrating -- you have to use wider stops. say an upswing begins across all indices.... for whatever reason, NQ often ticks up with the other contracts and then out of nowhere really kicks in with big-time acceleration. it will just burst 2-4 points in a few seconds. nevertheless, if you are on the wrong side of a surge, you will get filled on your stop at whatever price you put in. I find NQ to be excellent for 'stop-market' orders. the nice thing with NQ is the way it can really stretch out --- it can move far away from 'value' because its so volatile but it still has a very strong tendency to mean-revert back towards value. I find the YM to be a little less mean-reverting simply because it is less volatile. very often, at the end of a downswing -- I will see YM (and ES) make a 'higher low' while NQ makes a lower low (ABC) --this is NQ hunting down the stops below the last swing low. as far as I am concerned, this is a good thing. more 'stretch' means further to go when it mean-reverts.

just realize you are sitting down with a bunch of sharks trying to take your money. it takes most people 9 months or more before they can even breakeven. seriously, this is very complex stuff. I would suggest you read: Street Smarts (Raschke & Connors) Markets In Profile (Dalton) Mastering The Trade (Carter) My other advice: 1) don't overtrade your account. Find 1 or 2 very specific set-ups that only occur maybe a handful of times per WEEK and become a master of these trades and don't force 'em. Over time, you get several of these going and you get a few choice trades per day. You will STILL be wrong a fair amount of the time. 2) play for small targets most of the time. Rashke talks about how it is like fishing -- you cannot bag the big one every single day. you stick your line out there and see what you can get -- most of the time, they are small ones. occassionally, you catch a big one. just don't be the guy letting all the little ones go.

here is a look at thursday... a beautiful day for NQ traders: (I generally skip opening 30-minutes -- just watch) 1. play for a 10-11am reversal if 1st push is away from previous day value... (note there was also a little abc down). 2. ABC up forms into previous day 'last hour high'... this high forms while STILL in the 10-11am reversal timeframe. fade it for a flush down. 3. note how NQ hunts down and touches previous day POC wayyyy up at 67.50. there was a long play here off a mid-day coil breakout. a little tricky since no good ABC down to fade but there is a good tendency to go touch previous day POC. 4. after touching the POC, the market is extended and reached that congestion zone (the POC) for some resistance. again, fade this giant ABC up for a flush down... http://bp1.blogger.com/_5h-SWVGx6Ms/RnyVgfVSL3I/AAAAAAAAATs/XV-9fqufXOY/s1600-h/NQ+June+21+2007.bmp

<<It's price action produced market profiles that fit into vey nice little jibsaw puzzle peices. >> well said. when you get a chance, would enjoy seeing something you saw in todays technical structure.

Nasdaq is a game of stop-gunning and shakeouts. This is good news for short-term traders. My strategy is to patiently wait for the shakeout and then go the other way. A few guidelines I use: 1. Look for a reversal in the 10am - 11am timeframe if the first move of the day is 'away' from the previous days value area. There is very often a shakeout move that looks violent but is often a good counter-trend trade. It will often look like a trend day but the odds are to fade the shakeout and think about trading back towards 'value' -- think Dalton -- you are getting asymmetric location when you fade a morning 'price spike'... even trend days will often have a monster counter-move shakeout which you can catch for a few points. you are not investing with the closing price in mind -- you are just playing for a flush in your direction. 2. Look for ABC pattern to set up... this is often another shakeout play as a lower low or higher high looks scary but is usually just another counter-trend set-up. 3. You don't need to try to pick tops and bottoms. 7-10 point swings are common -- just try to catch the middle part of the move. 4. Look for NQ to touch its previous days POC -- it is a volatile contract that will touch its previous days POC 75%+ of the time. NQ loves to hunt down the previous days POC -- often even when it seems totally unreasonable. In general, its a good idea to look to trade in the direction consistent with NQ touching its previous days POC (though there are clear exceptions). 5. Don't overtrade this contract. There is all the liquidity you need. You just need to pull a few points out a day to make a living. Make 3-6 points per day with good size and you will rule the world. Some days, the thing is just nasty. Avoid it for a while. For example -- today -- NQ gapped down TOWARDS thursdays POC at 1954.50 (you prefer the first move to start AWAY from the previous POC). When it gaps and then carries into it, the market is basically back in balance and might just chew everyone up for a while. This is what happened. I may still try a trade in it but I will use smaller size. Comments and other observations. Please join me. You are not 'giving away secrets'... we are all peons in a world of immense institutions. their algorithms couldn't care any less about our scalping strategies.

ok fellas, its us against the machines (progam trading institutions). let's work together. this thread is for discussing the technical structure of the NQ futures and strategies for profitable trading in this contract.

not sure I understand what you mean: <<Unless your mechanical strategy's rules are based on the same assessment as your discretionary strategy, then you're comparing apples and pears. They have two different structures viewed by two types of technical analysis. >> there is one structure but it is being defined by the mechanical rules. for example, I see this pattern over and over again. the market closes low (or high) in its daily range, it will very often make a lower low (higher high) the next day followed by a reversal in the morning session. let's just say this is a tendency. ok, what defines a reversal? well, its pretty ambiguous... you can do an average true range function and if it goes X true ranges off the lowest low, than that is a reversal. now you can test for this mechanically. that is your structure. doesn't mean that if it goes X true ranges off the low that it is a profitable trade, it just means you have defined that to be a reversal and anything less than that is not a reversal. this is a consistent structure. if it doesn't go X true ranges off the low, then it was never a reversal, despite you thinking it was going to do that (your discretionary thinking at the time). so long as you are playing for reasonable profit targets, you should be ok. if it is a reversal, you will make your profit. if it isn't a reversal but flushes in that direction, you may make your profit anyway before the reversal fails. if it starts to reverse but then fails before hitting your profit target, then you lose. my real point is that you are just trying to find an entry/exit technique that is reasonably good statistically -- on a lower timeframe. the money-making will not come from this technique, it will come from your proper identification of the higher timeframe structure. I say this because after you write a simple mechanical strategy, very often you can see tons of trades that are clearly stuck in some range that you can easily discard as you never would have taken these 'signals' (this happened today, Friday). yes, some of your discards will be bad as they will break out of the range on that signal --- but that is similarly true if you are just discretionary trading. just a little confused on what you meant by saying they have 2 different 'structures.'

I have settled on this strategy. Comments appreciated... I spend 100% of my time thinking about the markets current technical structure. What is currently happening in real-time? What is happening on the 15-minute timeframe? What is happening on the 60-min timeframe? What about the 1600tick timeframe? Did we just make a momentum high? Did that push up just 'reject' the previous push down? Are we in a coil? Is this ABC down or ABC up? Is this a higher low or a lower high? Is this a bull/bear flag? Is this good trade location for a long? Does trade location favor the pattern I am seeing? I want to try to be flexible on this discretionary part as it plays out. When I get a sense of where it is going, I then wait for a mechanical scalping strategy to confirm it. I have a few mechanical strategies lined up and optimized for profit targets and stop losses... A few short-focused and a few long-focused. All use stops for entries and exits. I figure if they are profitable on their own, I can make them much better. It is up then up to me to figure out where the market is trying to go and 'go-with' the long signals if odds are to upside and 'go-with' short signals if odds are to downside. Is this a common approach? Do any of you guys do this? If you are right on the structure, you make a lot of money. If you are wrong, you stop out. It is then all about what % you are right. when you are wrong, you are wrong and you move on and wait for the next pattern and confirmation from the mechanical strategy. This has really been working for me lately and curious if this is a common approach?

we got a good discussion going recently on the 'Death to Discretionary Traders?' thread. in there, we got a lot of support for why discretionary trading is a good thing... how about a discussion on the disadvantages of discretionary trading? there must be good reasons why discretionary is viewed as negative by big institutions.

hmm torero, I have traded EMD a bit too and found that while yes it does jump around, it is less likely to jump around than ER2 --- I have found it to have LESS noise than ER2.

sorry if wasn't clear. Not targeting 2 ticks. the dumb mechanical strategy with 1 timeframe is on AVERAGE profitable by 2 ticks. Target 2 points on this particular strategy... optimization came out target 2 pts, 1.6 pts risk... the point was more questioning if that is how others think about this... if you can develop simple strategies in a single timeframe that are just breakeven over thousands of trades with no outsize winners skewing the results, you should be able to make that system profitable through filtering out trades that are triggered mechanically that have bad location or some other problem. for example, this particular strategy was 2-5 yesterday while I was 2-0. volume was awful yesterday so you could say that maybe you couldn't do much with the strategy signals and just skip them or you could do only pristine set-ups or you could still take them all and just do them in smaller size. (that said, I should have taken the last signal yesterday, moved stop to breakeven for globex and held overnight for big win...) I started the thread just to see if others think like me on this subject: using Market Profile (trade location filtering) to super-size your mechanical strategies? maybe not many profilers think like that though...

ok, so just curious others thoughts on this particularly those who have written mechanical strategies. if you can write a very simple strategy, and it comes up as 51% of trades profitable and say +$20 per contract per trade (say its for ER2). and say you have only 1 filter in it... ie, don't trade first 30 mins or last 15 minutes of day... So Here is the plan I have been executing; 1. Use some simple mechanical triggers with stops (optimized in the strategy) to give a few buy and short signals per day. 2. Use some 'trade location' logic via Market Profile as a discretionary filter to help choose direction (ie, go with momentum vs counter-trend trade). 3. Use some good pattern recognition as a discretionary filter (reversal times of day, taylor trading, bull flags, coils etc...) 4. Target just a few trades a day 5. Avoid real low volume days and other narrow range days.. 6. Add some non-quantiative trading savvy Take this process and make a living. This has been working for me. Is it sustainable over the long-run? It feels like 'trade location' via Market Profile is the secret sauce to making a strategy go from 51% profitable to something significantly higher than that. Moreover, any strategy using 1 simple driver with 1 filter in one time frame that is profitable over thousands of trades is pretty easily improved upon. discuss....

Sandler O'Neill research report on the news: 04:09pm EDT 19-Jun-07 Sandler O'Neill & Partners LP (Richard Repetto, CFA) CME Sandler: CME: The Response to the Russell Movement Sandler O'Neill + Partners, L.P. EQUITY RESEARCH Company Note ------------------------------------------------------------------------------ Chicago Mercantile Exchange NYSE: CME - $545.99 eFinance RATING: BUY 12-Month Price Target: $630.00 -------------------------------------- --------------------------------------- June 19, 2007 Richard Repetto, CFA, Principal 212-466-7906 rrepetto@sandleroneill.com Betsy Miller, Vice President 212-466-7962 bmiller@sandleroneill.com Christopher R. Donat, Associate Director 212-466-8068 cdonat@sandleroneill.com The Response to the Russell Movement ---------------------------------------------------------------------------- EPS Estimate Mar Jun Sep Dec Year Growth Change P/E ------- ------- ------- ------- -------- -------- -------- -------- -------- 2006A $2.61 $3.12 $2.95 $2.91 $11.60 31.7% -- 47.1x 2007E $3.69A $3.53 $3.68 $3.86 $14.76 27.2% -- 37.0x 2008E $4.26 $4.71 $4.50 $4.63 $18.10 22.6% -- 30.2x * CME announces its competitive response to ICE's acquisition of Russell Index rights. This morning, CME announced an expansion of its agreement with Standard & Poors to include E-mini futures on the Small Cap S&P Indexes. After CME's license to trade the Russell indices expires in September 2008, CME stated that it would incent traders to transfer their open interest from CME Russell 2000 futures to the new CME/S&P E-mini Small Cap contracts. * CME can trade Russell index futures until September 2008. We learned from CME management today that the company has a license to trade Russell index futures until September 2008, although ICE can trade it concurrently for just over a year. Once ICE obtains Hart-Scott-Rodino approval, which should be in roughly 30 days, it can begin trading the Russell. * The product versus the platform. We will have to take a "wait and see" approach as to where liquidity shifts for small cap E-mini indexes. The pros for ICE (the product) include large funds that are specifically indexed to the Russell. The pros for CME (the platform) include its technology, clearinghouse and cross-margining benefits with CBOT contracts. * Exclusive rights have not driven market for CME's main contracts. YTD in 2007, Eurodollar futures have accounted for 56% of CME's daily volume, and CME has no exclusive trading agreement for those. FX products have accounted for another 9% of CME's volume, and it has no exclusive licenses for those contracts either. The takeaway here is that there is more to driving volume than the exclusive right to trade a contract. * June-to-date volumes are tracking above expectations. In June-to-date, CME has traded an average of 8.73 million contracts per day, up 43.8% sequentially. We note the early part of the month included the roll, and we believe volume will drop off somewhat in the second half of June. Still, over the last two years, the second part of June has been down 25.0% and 26.2% from the first part. Our 2Q07 estimate of 6.07 million contracts per day implies the second part is down 41.9% from the first part. With open intererst also at record levels in the roll cycle, we believe there is upside potential to our 2Q07 EPS estimate of $3.53. The consensus is at $3.56. * Maintaining BUY rating. We are maintaining our BUY rating and our price target of $630, which is based on a 30x multiple of our 2008 pro forma earnings power EPS estimate of $19.87. We also add $30 for the discounted value of the $0.88 we estimate that CME Reuters FXMarketSpace initiative will earn in 2009.

Actually, the book isn't all that good except to make some points about how classic technical analysis might be the best way to compete in a world saturated with computer algorithms competing with each other. But past that, the point is not all that well-developed in the book. It seems to me this is a little like sitting in a poker game with a bunch of computers that are playing against each other with multi-billion dollar stacks. You have your little mini-stack and patiently wait for monster stack 1 to get out of line while going after monster stack 2. You take a little itsy bitsy piece out of stack 1 who at the same time takes a big chunk from stack 2. Because one multi-billion dollar stack is competing for some meaningful amount, they can't possibly be nimble enough or even care for that matter to try to go after your little stack -- they are after the big bucks. You can sit at the table and make a living off the scraps that are left from the 'excess' created by the bigger (higher timeframe) war going on.

one of the original questions posed in this thread was: "Do we even need [non-systems] traders? In the near future, are we likely to see more systems and less traders?" The market, with so many participants, with differing timeframes, with differing strategies is clearly enormously dynamic and complex. With growth of derivatives and leverage, there is a good argument going on about how the market will become increasingly non-linear --more in line with 'Chaos theory'... If this is true, 'chaos' plays against those who rely on raw compute-power. It will be increasingly difficult to 'model' (system trade) something that is increasingly chaotic and dynamic. You might say, yah well how is anyone going to operate in this environment then? From recent book I read by Hank Pruden ("The Three Skills of Top Traders"): "But the true elegance of chaos theory lies in its correlation and compatibility with the qualities of the old-time technicians." Dalton talked about how the human brain is not good at interpreting large amounts of complex information. But the brain is actually quite good at identifying well-structured visual objects (and 'patterns'). For example, looking at the equation for something like standard deviation takes a minute to go through and understand it. But looking at a bell-shaped histogram and marking off 1 standard deviation on either side is quite intuitive. Add multiple dimensions of complexity and then add in outside shocks like hurricanes, terrorism, political uncertainty that develops overnight etc... and it quickly gets overwhelmingly complex. Savvy technical analysts appear to have the opportunity to benefit from all of this. If you can have the patience to wait for the times where price 'auctions too far' due to big clumsy institutions fighting with each other and can therefore identify short-term asymmetric reward:risk positions with regard to 'trade location' -- and you can combine this advantageous trade location with a good entry/exit technique -- and you can enter and exit quickly with reasonable risk and no slippage, you do possibly have a good advantage over institutions.

A quote I liked from 'Mastering The Trade': "Some of the best traders I know have been trading the same set-up on the same timeframe on the same market for 20 years." pg 31

One thing big program trading firms can't do is carry positions with resting stops that get executed without slippage. I am talking about the big institutions here, not the nimble < $1B hedge fund. To the extent that all trading involves probabilities, not certainty -- the use of stop-loss orders limits losses for all the times where you suffer 'variance' to the expected result. Especially in a world where the 'non-linear break' is always a risk due to growth of derivatives. There is really only one good reason why a LTCM can blow up -- they could not get out of their positions. Being nimble is a real advantage.